Debt Default ‘Deferral’ of Greece a Dangerous Precedent – Got Gold?

Interest-Rates / Global Debt Crisis
May 19, 2010 - 02:35 AM

By: Arnold_Bock

If the implications of the recent Greek tragedy were not so serious it would have been seen more as a Greek comedy (of fiscal errors). In fact, however, to deploy another metaphor, Greece's sovereign debt is seen as the proverbial canary in the coal mine - a microcosm of the relentlessly growing sovereign debt that has taken much of Europe by storm and is threatening to spread to the U.S.

Short-Term Bail Out

Fifteen other member nations comprising the Euro currency club have recently saved colleague Greece from defaulting on its debt ... for now. On the surface this solution is just what any Keynesian economist would advocate because, as part of the bargain, Greece has agreed to implement a variety of painful spending constraints which will result in a much reduced standard of living for its people. In spite of such action, however, Greek debt will continue to grow to 150 percent of GDP by 2012.

Long-Term Debt Tomb

Unfortunately, however, this new bailout provokes and perpetuates a series of errors because Greece cannot, and will not, be extricated from its debt tomb. According to the UK Telegraph, Greece will now be doomed to transferring to foreign creditors an amount equal to 8 percent of its GDP in perpetuity ... much more than German reparations to foreign creditors after WWI. It cannot, and will never, be repaid.

Temporary Hiatus

Further proof that these loans will provide only temporary relief is recent research by economists Carmen Reinhart and Kenneth Rogoff in their new book “This Time is Different: Eight Centuries of Financial Folly.â€